VAT on Cars: Why is VAT important in car export?
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Can UK residents benefit from buying VAT qualifying cars? I How does VAT work on cars? I How can I reclaim the VAT when I export a UK car?
Introduction to VAT and Car Export
When importing a vehicle into Ireland, it’s essential to understand the Value Added Tax (VAT) implications. VAT is a consumption tax levied on the value added to goods and services. In the context of car export, UK VAT is charged on the purchase price of the vehicle. If the car is VAT qualifying, then a business can reclaim the VAT on a VAT Qualifying vehicle. This reduces the UK VAT charge of 20% on the buying price of the car. The VAT rate on motor vehicles in Ireland is 23%, which is applied to the Open Market Selling Price (OMSP) of the vehicle. So you could pay UK VAT and Irish VAT if you are not aware of the opportunities to reclaim them and remove them from your buying price prior to export. Get it right and you will save thousands of Euros off your car.
That’s alot to take in, so let’s break it down and answer the questions you will have one by one.
Why is VAT important in car export?
20% UK VAT can be reclaimed when a car is permanently exported from the UK.
What does vat qualifying car mean?
The term VAT qualifying car refers to a car which is eligible for the VAT to be reclaimed. This means the VAT can be deducted from the purchase price when the car is exported and requires the seller to reclaim the VAT from HMRC.
Can UK residents benefit from buying VAT qualifying cars?
UK residents can benefit from buying VAT qualifying vehicles if they own a VAT registered business and their VAT registered business buys the vehicle. This business can then reclaim the UK VAT. A UK resident cannot buy a VAT qualifying vehicle as a private purchase and reclaim the VAT.
How does VAT work on cars?
When a car is sold to a private individual, Value Added Tax (VAT) is applied at a rate of 20%, equivalent to one-sixth of the car's price. Typically, VAT isn't itemized on a car advertisement. Two methods are commonly used to calculate the VAT being charged:
Divide the advertised price by 6 to determine the VAT being charged.
Divide the advertised price by 1.2 to find the car's sale price without the VAT.
Import VAT is also applicable when bringing a car into Ireland from outside the EU, and it is crucial to factor in all associated costs, including delivery charges, when calculating the total VAT payable.
Is there VAT on New Cars?
Initially, all new cars are VAT qualifying. If they are registered to a UK VAT-registered business, they retain their VAT qualifying status. However, if they are registered to a private individual, they transition to being non-VAT qualifying.
Is there VAT on Used Cars?
A used or second-hand car retains its VAT qualifying status if it has been continuously registered to businesses during its lifespan. However, once it is registered to a private owner, it loses its VAT qualifying status, and the VAT cannot be reclaimed.
It's quite common to find cars up to 4 years old that are still VAT qualifying. However, as the age of the car increases, the number of VAT qualifying options diminishes.
Is there VAT on Pre-registered cars?
A brand new vehicle owned by a car dealership or lease company is a pre-registered car. This makes it VAT qualifying since it's owned by a business from the outset, rather than a private individual.
Is there VAT on electric cars?
In the UK, electric cars are not exempt from VAT; they follow the same taxation rules as petrol and diesel cars. Initially, new electric cars are VAT qualifying until they are sold to a private individual. However, they maintain their VAT qualifying status as long as they are owned by a business.
Is there VAT on lease cars?
Most lease cars are VAT qualifying as they have most likely been owned by businesses for their lifetime.
Is there VAT on company cars?
In a similar way to lease cars, many company cars are bought as news cars by the business. If they have only been owned by businesses then they will be VAT qualifying. Beware of some dealership cars where the car may have been registered to a specific manager. This will have switched their VAT qualifying status to non-VAT qualifying.
Is there VAT on commercial vehicles?
The rules regarding VAT for vans, motorhomes, trucks, lorries, pick-ups and combi-vans (vans with rear seats) are the same as the rules for cars.
How can I reclaim the VAT when I export a UK car?
It is important that you clearly understand how the VAT will be reclaimed for your car, before you buy it. Only UK VAT registered businesses are eligible to reclaim the VAT, but they must meet the requirements laid out by the UK government.
Some companies will ask you to pay them the VAT whilst the reclaim is applied for. This can be perilous. We do not charge our customer the VAT. Instead you can enjoy buying your car at the net of VAT price and not worry about covering the 20% VAT at all.
How is VAT applied on car imports to Ireland?
When importing a car into Ireland, VAT is a significant cost. For cars coming from Great Britain, VAT is charged at the standard Irish rate of 23% on the value of the car. This includes the purchase price, shipping, insurance and any applicable customs duties.
Cars from Northern Ireland are treated differently. Used cars from Northern Ireland are not subject to VAT on import into Ireland unless they are classified as "new means of transport". A car is considered new for VAT purposes if it’s less than 6 months old or has done less than 6,000km.
Conclusion and Final Thoughts on VAT and Car Export
As you can see, VAT plays a vital role in car export. It can make you the single biggest cost saving on the car you buy, provided you understand and adhere to the rules around buying and exporting VAT qualifying cars from the UK, you should be able to enjoy the saving.
Get in touch with our professional team and we’ll take care of the details for you. All you have to do is decide on the car you want to buy.
